Laura losses to hit reinsurers & ILS, but primary insurers to retain majority: Fitch

Industry losses from hurricane Laura are expected to largely fall to primary insurance carriers, but rating agency Fitch says that traditional reinsurance carriers and insurance-linked securities (ILS) players will take a share.

Industry loss estimates currently range from $4 billion to $9 billion, according to the catastrophe risk modelling companies.

But still, some market sources suggest the eventual toll, once offshore energy losses and an element of inflation for the effects of Covid-19 are factored in, could stretch into the double-digit billions of dollars.

Fitch Ratings said that it expects the majority of this to fall to the primary market, as the ultimate size of the loss is not at the level where reinsurance capital would be providing significant support, it seems.

As a result, the rating agency thinks it unlikely that hurricane Laura will trigger any ratings downgrades of individual property & casualty (P&C) insurers or reinsurers.

“While losses will take some time to reconcile, there are indications that this will be an earnings and not capital event for the industry Fitch-rated insurers with the largest property market share in Louisiana and have capital positions that remain robust at midyear 2020 despite the impact of the coronavirus pandemic,” the company said.

There is a chance of complications due to the coronavirus pandemic, given the “logistical challenges of assessing damage to property following a catastrophe event,” which could potentially result in “modestly elevated levels of loss adjustment expenses,” Fitch explained.

That’s not to say hurricane Laura isn’t going to stretch the insurance industry, as Fitch Ratings notes that Laura comes on top of an expensive first-half of catastrophe losses and a number of other events already in Q3.

“Losses generated by Laura in combination with previous named storm landfalls in the U.S. in 2020, ongoing wildfires and losses related to the coronavirus, puts added stress on industry earnings,” Fitch said. “Personal lines writers were relatively unaffected by underwriting losses from the coronavirus in 1H20 and remain well positioned to absorb losses from catastrophe events through the remainder of the year.”

The reinsurance market and ILS funds will see a share of the costs from hurricane Laura, with some losses set to flow through proportional transactions, as well as other contracts.

Fitch expects that, “Traditional and insurance-linked securities reinsurance markets will see claims from Laura through both quota share treaties and excess of loss business that has seen an accumulation of catastrophe losses in 2020.”

That excess of loss reference will be referring to aggregate reinsurance contracts that are close to triggering on the back of a run of severe weather losses in the U.S., as we explained last week here.

But, while reinsurers will assist and some ILS fund capital as well, primary insurers will still take the lions share, as Fitch explained, “Given the expected moderate size of the loss, the event is likely to have a greater impact on primary insurance companies than reinsurers.”

But the impact that does fall to reinsurance capital will add greater impetus to the push for higher rates at upcoming renewals, Fitch believes, saying that, “The impact of Laura on (re)insurer earnings is expected to add to the push for higher rates on property reinsurance at upcoming renewals.”